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Casino Wins Favored Loan Terms

Las Vegas Sands gets investment-grade treatment despite junk ratings.

Junk-rated Las Vegas Sands Corp., the casino operator controlled by billionaire Sheldon Adelson, is getting investment-grade treatment from banks as cash flow from its properties in Asia outpaces those in the U.S.

Lenders participating in a S$4.6 billion ($3.6 billion) credit facility dropped demands that the Las Vegas based company use any excess cash at the end of its financial year to reduce the loan’s outstanding balance, two people familiar with the matter said on June 4. Typically, only high-grade borrowers are awarded such terms.

The perception of Las Vegas Sands’s credit quality is improving as its Asian casinos benefit from economies in the region that are expanding faster than the rest of the world. The company said its first-quarter casino revenue in Singapore, where it runs the 2,561-room Marina Bay Sands, increased 51 percent to $701.3 million, almost 4.5 times the $158.7 million of revenue from its casinos in Las Vegas.

“Marina Bay Sands has been an incredible success for the company, the property has done much better than anyone expected,” Aaron Fischer, the Hong Kong-based head of consumer and gaming research at CLSA Ltd., said in a telephone interview.

Marina Bay Sands, home to an ArtScience Museum showcasing the works of Andy Warhol, restaurants from celebrity chefs Mario Batali and Daniel Boulud, and a hotel that averages 98 percent occupancy at $341 a night, has bolstered growth in Singapore.

The loan for Marina Bay Sands Pte, Las Vegas Sands’s Singapore unit, will pay interest at a rate of 185 basis points more than the Singapore dollar swap offered rate. The margin is 40 basis points narrower than what the company paid to borrow $3.2 billion in November, and 65 basis points less than its cost for $1.4 billion in 2010, according to data compiled by Bloomberg.

The 2010 loan was quoted at 96.9 cents on the dollar yesterday to yield 3.73 percent, Bloomberg data show.

Proceeds will be used to refinance debt and the loan may be split into a S$4.1 billion term facility that matures in six years and a S$500 million revolving credit facility due in 5.5 years, the data show. Marina Bay hired DBS Bank Ltd., Oversea-Chinese Banking Corp., Malayan Banking Bhd. and United Overseas Bank Ltd. as global coordinators for the financing in March, according to data compiled by Bloomberg.

The facility has since attracted four banks to share the underwriting risk in marketing -- Bank of China Ltd., Sumitomo Mitsui Banking Corp., Standard Chartered Plc and CIMB Group Holdings Bhd. -- as well as about 10 others in wider syndication.

Adelson, 78, is the world’s 19th-richest person with a fortune of $20.7 billion, according to data compiled by Bloomberg. His first jobs included paper boy, ad salesman and court reporter before he made his first fortune in trade shows.

He parlayed that windfall into the Las Vegas Sands casino business, which includes the Venetian Macau in China and Singapore’s Marina Bay. His wealth has risen 7.7 percent this year, or $1.5 billion.

Macau, the only place in China where casino gambling is legal, overtook the Las Vegas strip as the world’s biggest casino market in 2007. The number of Chinese visitors to the former Portuguese colony rose 22 percent to 16 million last year, helping to increase gambling revenue 42 percent to 268 billion patacas ($33.5 billion), according to Macau’s Gaming Inspection and Coordination Bureau.

Marina Bay’s popularity among gamblers in Asia helped Singapore, Asia’s second-smallest country after the Maldives, attract a record 13.2 million visitors in 2011. The island’s other integrated resort, Genting Singapore Plc, has also lured tourists.

Las Vegas Sands’s sales may reach $12.4 billion this year and $14.9 billion in 2013, CLSA forecasts. The company’s revenue last year was $9.4 billion, a 37 percent increase from 2010, and net income was $1.56 billion, up from $599.4 million, according to data compiled by Bloomberg.

KDP Investment Advisors Inc. analysts led by Barbara Cappaert estimate Las Vegas Sands’s 2012 total debt to Ebitda ratio will be 2.2 times as of Dec. 31. That compares with an industry median of 5.5 times, according to an April 26 report.

For Las Vegas Sands, “Asia remains the star,” said Cappaert, who forecasts free cash flow of $962.1 million in 2012. “Free cash flow should remain strong, even after new investment spending.”

‘Top Pick’

Las Vegas Sands stock rose 2.4 percent yesterday to $46.10. That’s a gain of 7.9 percent this year and below the April 12 high of $61.05.

The company “is our top pick among our U.S.-listed gaming coverage given the strong free cash flow generation in Macau and Singapore and an estimated free cash flow yield of 8 percent for 2013,” CLSA’s Fischer said.

Moody’s Investors Service rates Las Vegas Sands Ba2, the second-highest non-investment grade. Its senior secured debt is also rated Ba2, having been raised from Ba3 in November, according to data compiled by Bloomberg. Three years ago, the debt was rated B3.

The request that lenders remove the so-called cash sweep mechanism clause has meant banks have had to again seek approval to lend to the facility from their internal credit committees, the people familiar with the matter said on June 4, asking not to be identified because the details are private. Most banks have agreed to its removal, the people said.

“On a leveraged facility it’s standard for banks to seek to bring down the loan quicker than the scheduled amortization by requiring the borrower, at the end of its financial year, pre-pay any excess cash over and above its requirements and therefore bring down the overall maturity profile of the bank debt,” said David Irvine, a Hong Kong-based partner at Linklaters LLP who specializes in structured lending. “The closer a borrower gets to being an investment-grade corporate with stable cashflows, the less need there is for such a clause and it can fall away.”

The starting interest margin of 185 basis points that Marina Bay will pay on the loan is based on its consolidated debt to earnings before interest, taxes, depreciation and amortization of more than 3.5 times, according to a document obtained by Bloomberg News and confirmed by a person familiar with the matter.

The interest falls to 165 basis points once the ratio drops to between 2.5 and 3.5 times, and declines to 145 once the ratio ranges from 1.9 and 2.5 times. It becomes 115 once the ratio is less than or equal to 1 time, according to the document.

‘Decision Process’

Wynn Macau Ltd., the Hong Kong-listed unit of billionaire Steve Wynn’s Las Vegas-based Wynn Resorts Ltd., is offering to pay a starting margin of 250 basis points more than Libor for a loan of $1.5 billion it’s currently seeking from banks in Asia, a person familiar with the matter said on May 24.

The margin will be 250 basis points for leverage of 4.5 times or more, 225 for 4 to 4.5 times, 200 for 3 to 4 times and 175 for less than 3 times, the person said. Banks pledging $200 million will be paid an upfront fee of 200 basis points and there is a so-called early bird fee of 12.5 basis points for banks joining by tomorrow, the person said.

Wynn Resorts is rated Ba2 by Moody’s, the same as Las Vegas Sands. Its Macau unit plans to spend $4 billion on a new resort in the former Portuguese colony financed by loans, debt and cash, Wynn told reporters on June 5 after Wynn Macau’s annual shareholder meeting.

Caesars Entertainment Corp., the most leveraged big U.S. casino operator and the only one without a presence in Asian gaming markets, is paying a margin of 525 basis points for bank loans signed in March, according to data compiled by Bloomberg.

“Las Vegas Sands is an aggressive, large-scale global developer, so the question is how much cash the company wants to retain for potential future projects, to distribute to shareholders, or to pay down debt,” Michael Paladino, a senior gaming analyst at Fitch Ratings in New York, said on June 5. “That’s a nice decision process to have.”

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